AP Enterprise: Lowball gas drill leases haunt Pa.

In this July 17, 2011 photo, Dave and Karen Beinlich are shown on their farm near Forksville, Pa. The Beinlichs are among thousands of residents living atop the Marcellus Shale who signed lowball leases in the years leading up to the gas boom in Pennsylvania. (AP Photo/Ralph Wilson)
— AP

In this July 17, 2011 photo, Dave and Karen Beinlich are shown on their farm near Forksville, Pa. The Beinlichs are among thousands of residents living atop the Marcellus Shale who signed lowball leases in the years leading up to the gas boom in Pennsylvania. (AP Photo/Ralph Wilson)
/ AP

Companies are testing the bounds of what it means to hold land by production, said Taunya Knolles Rosenbloom, an attorney in Bradford County who often represents Marcellus landowners.

Companies typically group adjoining landowners together into larger drilling "units" consisting of hundreds of acres. The practice eliminates the need to drill a well on every single landowner's property, but it also means that any production that takes place on one parcel of land automatically holds all of the other parcels by production.

Rosenbloom said she's seen bogus unit declarations filed by drilling companies well after lease expiration, with no surface activity whatsoever. In one Bradford County case, she said, a drilling company placed a single half-acre of a landowner's 127-acre property into a drilling unit - yet the gas well that was supposed to have tied up all of her land indefinitely ended 400 feet from the edge of her property.

"The companies will make you enforce your rights, which is the sad part," she said. "That's the part that really gets under your skin."

Some legal disputes have arisen over the conduct of the landmen who secured the leases in the first place.

Dairy farmers John and Mary Alice Castrogiovanni of Montrose signed a lease with Houston-based Cabot Oil & Gas Corp. for $25 an acre in 2006. The couple sued Cabot for fraud earlier this year, saying in court papers the company's landman had falsely told them that $25 "was the most that would ever be paid," and that if they didn't sign, Cabot would drill a well on a neighboring parcel and take their gas anyway.

John Castrogiovanni, 85, said in an interview he would never have agreed had he known about the Marcellus Shale and its impact on lease prices. He said he assumed the 2006 lease was similar to earlier gas leases that he had signed for pennies an acre decades ago.

"What Dad thought was, little gas guys come, they sell you a lease, they pay you and you never see them," said Castrogiovanni's son, Matt. "Because it's been that way for decades. They would pay you and you would never see anything of them. It was like free money, in a sense, and this was going to be no different."

Except this time it was different, a lot different.

"You know a landman's lying if his mouth is moving," Matt Castrogiovanni said.

In its legal reply, Cabot said the couple couldn't prove the landman knew his statements were false, a required element of fraud. The company also argued that state law bars fraud claims regarding statements about "what a person will or will not do in the future."

The Castrogiovannis withdrew their federal lawsuit in March, citing an adverse ruling in another case. Though they believe they were wronged, John Castrogiovanni said he concluded they stood little chance of winning.

While Pennsylvania landowners face up to the consequences of leasing decisions they made years ago, the attorneys general of Maryland and Ohio, states underlain with Marcellus Shale but much slower to develop the industry, recently warned residents about speculators. They counsel that landowners should be careful about what they sign, resist pressure to strike a deal right away, and seek legal help.